Wednesday, April 27, 2016

This Week's US Economic Data So Far Mixed, But Still Point to Sluggish GDP Growth

So far, this week's US economic data have been mixed.  March New New Home Sales and Durable Goods Orders were disappointing, posting declines and coming in below consensus.  But, March Pending Home Sales sped up and the March Trade Deficit narrowed. 

New Residential and Manufacturing Demand look to be in a flat ranges since November 2015, with March prints coming in at the low end of these ranges (see table below).

The smaller trade deficit resulted from a large drop in imports, meaning that some of the weakness in US domestic demand is hurting foreign economies rather than that of the US.

The flattening of demand in two major sectors of the US economy does not bode well for the GDP outlook.  Consensus for Q1 Real GDP (due tomorrow) is 0.6% (q/q, saar) -- equal to the Atlanta Fed GDP Model estimate (which was raised from 0.3% after today's release of the advance March Trade Deficit).  And, Q2 GDP Growth may not be much better.  The NY Fed GDP Model's early prediction is +1.2%.  Both quarters would be slower than the 1.4% in Q415.

I would not be surprised if this sluggish growth picture catches up to April Payrolls, pulling them below 200k.  April Payrolls are due May 6.

This anemic growth backdrop should keep the Fed on hold at least until after the November elections.  The backdrop is a positive for Treasuries and a caution for stocks.

                                                               Durable Goods Orders
                   New Home Sales          Ex Transportation         Core
Oct15             715k Units                    $156.8 Bn                  $69.6 Bn
Nov                727                                 156.0                          68.9
Dec                732                                 154.9                          66.5

Q4 Avg          725                                 155.9                          68.3

Jan16             728                                  157.0                         68.7
Feb                736                                  155.1                         66.9
Mar               724                                  154.7                         66.9

Q1Avg           729                                 155.6                         67.5

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